«PROACTIVE ENVIRONMENTAL STRATEGIES IN SMALL BUSINESSES: RESOURCES, INSTITUTIONS AND DYNAMIC CAPABILITIES Jan Lepoutre Promotor: Prof. Dr. Aimé Heene ...»
What seems most important for strategy in these grass-roots models of strategy is the ‘vision’ or ‘goal’ that guides strategies in every day life. By defining (or borrowing) a strategy as the basic principles of purpose, a vision, an “ideology or missionary zeal” (Mintzberg & Mchugh, 1985: 193), strategists possess “a clear strategy focus of the company, while allowing employees to enact the strategy in adaptive, innovative ways” (Grant, 2008). What is a necessary goal for strategists, then, is to be aware, even ingrained, of one’s aspirations (Sarasvathy, 2001) or the ontological purport of the organization, in order to guide the cyclical process of strategy as “planned emergence” (Grant, 2008).
188.8.131.52. Competence-based view The “competence-based view” (CBV) has as its objective to be an “integrative theory that incorporates economic, organizational, and behavioral concerns” and which is “dynamic, systemic, cognitive and holistic” (Sanchez & Heene, 2004). In its core, the CBV addressed a critique of the RBV that, although a firm’s critical resources may extend beyond firm boundaries (Dyer & Singh, 1998; Zaheer & Bell, 2005), the RBV had been focussed mainly on internal resources. Therefore, the role of strategy is not only its ability to seek “fit” between the organization and its environment, but also to “stretch” the organization by acquiring new competences and capabilities that may change the environment in its favour (Sanchez, Heene, & Thomas, 1996). As such, the CBV relates superior performance to an organization’s ability to respond to dynamic and changing environments, by attributing the
cognitive possibility of strategic management to imagine, design and implement the organizational processes and resources to respond to the environment, or even change it. Such an interplay between the organization and its environment is possible, since the organization is seen as a system of intra- and extra-organizational resources and actors over which the strategist must maintain a holistic view (Prahalad & Hamel, 1990; Sanchez et al., 1996;
Sanchez & Heene, 2004). Strategy is thus the process of building the organization as an open system for value creation and value distribution through the building and leveraging of competences.
In its formulation, the CBV adopts many of the insights from the resource-based view, upper echelon theory, resource dependence theory and institutional theory and thus represents an integrative theory of strategic management. Although as such, it is promising as a theory for management and instructive purposes, its use in research has been rather limited to date.
184.108.40.206. Oliver’s institutional – resource based perspective Drawing upon both institutional theory and the resource-based view, Oliver argued that “resources selection and sustainable competitive advantage are profoundly influenced, at the individual, firm and interfirm level, by the institutional context of resource decisions.” (Oliver, 1997: 698). Essentially, the message is that resource characteristics and the capabilities to use them are important precursors of organizational performance, but only to the extent that they are valued by the institutional context: “even highly productive, inimitable resources will be of limited value without the organizational will or political support to deploy them.” (Oliver, 1997: 710). But the relationship between institutions and resources also works the other way around. By imposing regulation or developing certain policies, governments can change the institutional context in such a way that specific resources become rare or highly valuable. This assertion would be confirmed by the research suggesting that many regulations are the result of firms lobbying for standards that function as entry barriers for their competitors (Stigler, 1971).
For Oliver, the role of the strategist is to manage both the organization’s resource capital as well as its institutional capital. The resource capital consists of all the resources and competencies that enhance the value-creation possibilities of the firm. The institutional capital is defined as the context which surrounds this resource capital and which enhances or inhibits its optimal use. By defining the role of strategy as this integrative purpose of managing both Chapter 2 economic and normative rationalities, a bridge can be built between the outside-in and the inside-out perspectives on strategy.
2.2.4. Summarizing Although the former descriptions highlight the differing conceptions of how strategy is defined and where the sources for superior organizational performance lie, the most recent contributions stress the importance to seek a combination of perspectives when considering strategy: “because the nature of strategy problems cannot easily be framed within a fixed paradigm, strategic management is necessarily a multi-paradigmatic discipline, requiring varied theoretical perspectives and methodologies”. (Hoskisson et al., 1999: 444). As a result, research in strategy will benefit most from an integrative approach to firm performance, that blends insights both from inside-out and outside-in approaches to organizational performance.
In addition, the unifying element in all concepts is an ontological search for what an organization stands for, and how this can inspire an organization to deploy its resources and capabilities in dynamic markets and societies in a way that enables it to achieve its objectives.
In summary, I will use the following interpretation of strategy as a reference
throughout this dissertation:
Strategy is the purpose-driven and continuous process of resource building, selection and deployment for value creation and distribution, by navigating through and interacting with the structural and social conditions that influence their value.
2.3. “Environmental” Within the domain of strategy, the (biophysical natural) environment presents a particular domain of interest. Environmental strategies are positioned alongside other strategies, in which the specific interaction between the focal firm and an extra-organizational issue is described. Each of these strategy types differ from another in the specific challenges imposed on organizations and how they endorse a customized strategic reflection process. For example, internationalization strategies (Melin, 1992; Caves, 1996; Peng, 2001) need to deal with “the liability of foreignness”, cooperation strategies (Dyer & Singh, 1998; Nooteboom,
2004) with information asymmetries and agency problems, and political strategies with power asymmetries and institutional inertia (Hillman & Hitt, 1999). In this subsection, the focus is on the natural environment as a specific issue to strategy. The Merriam-Webster online
dictionary defines the (natural) environment as:
“the complex of physical, chemical, and biotic factors (as climate, soil, and living things) that act upon an organism or an ecological community and ultimately determine its form and survival” (www.merriam-webster.com) As a consequence, I define a (natural) environmental strategy as the purpose-driven and continuous process of resource building, selection and deployment for value creation and distribution, by navigating through and interacting with the structural and social conditions emanating from the natural environment that influence their value.
I argue that (natural) environmental strategies are distinctive from “other” strategies in three respects: (1) the natural environment is a common good and, as a result, generates a number of market failures; (2) the natural environment is a social issue; and (3) the natural environment instigates reflections of a paradigmatic nature.
2.3.1. The natural environment and market failures Many natural resources are “common goods”: they are transitory and indivisible in nature, which hinders the necessary allocation of property rights that allow market transactions to put a price on the consumption of the common good (Perman et al., 2003). As a result, economic agents that consume common goods in their production processes are unlikely to consider the free consumption of the common good in their production function.
Such a cost-free consumption has been related with market failures (Coase, 1960). A market failure is a situation where markets fail to generate Pareto-efficient outcomes, i.e. where free market competition distributes utilities in a way that produces the maximum level of welfare to society (Arrow & Debreu, 1954), in this particular case: a natural environment that is able to sustain the well-being of its inhabitants. The natural environment elicits market failures because it does not meet the conditions set to the idealized neoclassical model of the free market (Pigou, 1920; Coase, 1960; Hardin, 1968): for many environmental resources, markets simply do not exist. The three most important market failures in the context of the natural environment are “externalities”, “tragedy of the commons” and “inefficiency”.
The first situation, externalities, occurs when the cost of a transaction is carried by someone that has not consented to or has played any role in the execution of that transaction (Pigou, 1920; Coase, 1960). In this respect, pollution is presented as the free consumption of a non-polluted resource that has a value for a third party. An oil company getting rid of waste oil by dumping it in the sea may cause great losses to the tourism industry living of a beach
that is polluted by the spilled oil. Similarly, excess nitrogen applied in manure on soils may run off with surface or ground water, which will subsequently need to be treated (often by public environmental services) against nitrogen toxicity if one would want to use it for human consumption. Besides the lack of property rights, common goods also suffer from information asymmetries. For many externalities it is difficult to pinpoint the originator of the externality.
Whereas this may give bad-willed polluters the incentive to produce externalities because they cannot be caught or sanctioned for producing them, externalities are not always the result of deliberate ignorance or bad-willed intentions: the polluting or welfare-destroying effects are not always visible to its creator and he or she may thus not be aware of the externality.
Furthermore, the effects of externalities are not always traceable to one specific actor: some emissions or consumption patterns only become harmful as a result of the culmination of the practices of a host of actors. Taken together, a recurring characteristic in these situations is that the polluting firm receives no incentives from the market to internalize the costs inflicted
on third parties:
“Economic systems make many polluting and wasteful goods seem alluringly inexpensive because they do not incorporate the full ecological costs of their production or use. These costs are passed on to future generations, transferred to nonusers of products as taxes or exported to less environmentally regulated countries.” (Shrivastava, 1995b) The second situation, “the tragedy of the commons” (Hardin, 1968; Ostrom, 1990), refers to a situation where the short-term consumption of clean air, fish, pasture or any other common good, may extinguish the longer term existence of the natural resource. Without external constraints imposed or artificial markets created through quota trading or permits, economic agents lack the feedback mechanisms (i.e. discounted future costs reflected in the price) that signal the longer term peril of overconsuming the common good. As a result, they will tend to continue consuming the free common good until it is entirely gone. A typical example of the tragedy of the commons can be found in fisheries: by fishing too much, the regenerative capacity of fish is endangered in such a way that the population can not be sustained. From a more macroscopic point of view, the “tragedy of the commons” has been the focal point of worry since the industrial revolution. Since the early warnings by Malthus and Ricardo that there are limits to the carrying capacity of natural resources to sustain a growing economy, scientists have continued to question the possibility to sustain a development with increasing levels of consumption of natural resources (Meadows, Meadows, & Randers, 1972). The biggest question in this perspective is whether we can